Econ 4304 Introduction to Econometric Methods - Home Page for ...

Dr. Ashley
Spring, 2005
Econ 4304 Introduction to Econometric Methods
{Web Page: http://ashleymac.econ.vt.edu/4304spring05/home.htm}
Lecture: TR 11:00 - 12:15 MCB 302 (CRN 11799)
Office Hours: TR 10:00 - 11:00 Pamplin 3027
12:30 - 1:00
{Actually, I am usually happy to talk with you at any time;
“office hours” are just a set of times I try to for sure be in my office.}
telephone:
e-mail:
231 6220 (office)
ashleyr@vt.edu.
Prerequisite:
STAT 3005 or equivalent. This pre-requisite will be
strictly enforced! 1 Co-requisites: 3104, 3204.
Notes:
(1) Because I will have to miss several classes in late March or early April due to professional travel,
I will re-schedule some classes from the latter part of the term into weeks 4 - 7. These re-scheduled
classes will probably take place on either Monday or Wednesday evenings, hopefully in such a way that
virtually everyone can attend; the exact days and times determined in consultation with the class during
week 3.
(2) I will generally be happy to talk with you about the course at any time; office hours are merely
designated times when I will do my best to be available without any prior arrangement. Outside of my
scheduled office hours you might wish to call ahead to confirm that I am available: my office telephone
number is 231 6220.
(3) I am also available via electronic mail. My address is ashleyr@vt.edu. I ordinarily check my mail quite
frequently whenever I am in the office.
(3) For additional administrative announcements, see the course bulletin board (a link to which is near
the top of the course web page) and re-check it frequently during the term.
however.
1 I will usually allow this prerequisite to be waived for motivated students who did well in my ECON 3254 course,

Required Materials:
A Brief Introduction to Econometrics
Ashley
{This is the third draft of a textbook – to be published by Prentice-Hall in 2006 – which is
expressly designed for this course. It is available at A-1 Copies. A-1 Copies is located in the
University Mall; it is next door to Printer's Ink, at the opposite end of the mall from the Volume II
bookstore. In case you are wondering, A-1 Copies makes a profit on each copy sold; I do not. I
expect each of you to purchase this book, to keep up with your reading assignments in it, and
to bring the relevant chapters with you to class for note-taking purposes.}
STATA computer program
{This will be available for purchase (for $55 or so) at Department Office, 3016 Pamplin Hall. I
expect each of you to purchase this program and to make arrangements with a classmate so
that you can still have some access to the program even if your own computer becomes
dysfunctional during the term.}
Grading:
Homework 25%
Midterm exam #1 25% Tuesday March 22 nd
Midterm exam #2 25%
Final exam 25%
Honor System Note:
The homework is a crucial element of the course, so I insist that you do this yourself. The use of koofers or
homework solutions from previous years is prohibited, as is collaboration on homework assignments. On the other
hand, getting help from me (in or out of class) is okay, indeed, encouraged – just make sure that you understand what
you turn in. Feel free to consult with each other on the mechanics of STATA and Web homework assignments, and
(of course) on classroom/textbook material.
Additional Notes:
(1) To complete this course you will need convenient access to the Internet via a forms-capable WWW
browser, with an Adobe Acrobat reader and a printing capability. The Adobe Acrobat reader software can
be downloaded from a link at the foot of the course web page. You will also need a computer to run
STATA. Obtaining and maintaining computer access is your responsibility – I strongly urge you to
make friends with your classmates so that you can maintain at least some access even if your own
computer stops working.
(2) No late homework will be accepted; however, your worst two homework scores will be dropped.
There will be approximately 10 - 20 homework assignments. Some assignments will involve paper &
pencil derivations very similar to material covered in class; other assignments will involve exploring
material on the Internet and/or working with economic data. You will be given ample lead time to work on
each assignment, but you will necessarily often be working on several kinds of assignment at once.

(3) The examinations will not emphasize memorization of formulas or facts. Instead, I will ask problemtype
questions which test for whether or not you understand the ideas and methods which were either
presented in class and/or introduced in assigned reading or homework problems. Consequently, while the
examinations will be closed book, I will allow you to bring in and use one page of notes. If you understand
the homework assignments, you will most likely do well on the examination. If you fail to come to class
regularly, you will almost certainly be unable to cope with either the homework or the exams.
(4) This course will not emphasize the memorization or evaluation of formulas, nor the looking up of
critical points in tables, but the assignments for this course will involve a substantial amount of time and
effort on your part – budget your time appropriately!
(5) This course assumes a more substantial statistics background, reflected in the prerequisites, than does
ECON 3254; it is designed to be a substantially deeper and more challenging course than ECON 3254 –
more suitable for those of you going on to employment and/or graduate work in economics. If this is not
what you want, please take ECON 3254 instead.

Course Outline
I. Introduction
A. Administrative material (office hours, grading, materials, prerequisites)
B. What this Course is about
C. Illustrative Examples
1. Economic relationships over time – historical time plots
2. Relationships between pairs of economic variables
a. scatter diagrams
b. bivariate regression analysis
II. Mathematics Review
A. Summation notation
B. Differential calculus (differentiating functions, chain rule)
III. Probability theory
A. Univariate moments (expectations,mean, variance)
B. Bivariate moments (covariance, correlation)
C. Linearity property of expectations
D. Statistical independence
1. definition
2. multiplication property of expectations
3. relation to covariance/correlation and linear relationships
E. Gaussian variates
1. density function
2. relation to uncorrelatedness vs. independence
3. linear combinations of gaussian variates are gaussian
4. description of central limit theorem
F. Mean and variance of linear combinations of variates
IV. Statistical Theory
A. Simplest interesting statistics problem – estimating population mean ()
from gaussian random N-sample with variance ( 2 ) known
B. Sampling distribution of sample mean
C. Inference on when 2 is known
1. Confidence intervals
2. Hypothesis tests
D. Inference on when 2 is not known
1. Estimating 2
2. 2 distribution
3. Student’s t distribution
E. Inference on 2 (F distribution)
F. Properties of estimators
1. Definitions and desiderata
2. Small sample properties (rel. efficiency, efficiency, BLUness)
3. Large sample properties
V. Bivariate Regression Model
A. Examples
B. Assumptions
C. Least Squares Estimators
1. Sampling distribution
2. Properties (unbiasedness, consistency, BLUness, etc.)
D. Goodness of Fit (R 2 )
E. Distribution of s 2
F. Hypothesis Testing
G. Prediction
VI. Additional Topics
A. Heteroskedasticity/Autocorrelation
B. Multiple Regression (multicollinearity, omitted variables)
C. Stochastic Regressors (lagged dependent variable, simultaneous equations)
D. Limited dependent variables models
E. Differencing vs. de-trending/cointegration